TPP's Economic Impact Will Be Fewer Jobs, More Inequality, New Study Says

The U.S. would see the largest negative impact from the TPP.

The Trans-Pacific Partnership meant to create the world’s largest free trade area will cost Canada 58,000 jobs and increase income inequality, says a new U.S. study.

Perhaps more surprisingly, the study found that the two largest economies in the TPP — the U.S. and Japan — would actually shrink as a result of the trade deal, and that the deal would result in fewer jobs overall in all the participating countries.

Ten years after the TPP were to come into force, Canada’s economy would be 0.28 per cent larger than it would have been without it, the study from Tufts University, near Boston, found.

That amounts to an additional $5 billion in economic activity, on an economy worth some $1.8 trillion today. That boost is only slightly more than the $4.3-billion subsidy the Harper government proposed for the dairy industry, to absorb the shock of an open dairy market.

The U.S. economy would be about 0.54 per cent smaller with the TPP, or about US$100 billion smaller. The country would see a net loss of 448,000 jobs due to the agreement.

The authors — researchers at Tufts' Global Development and Environment Institute — say that’s because creating the massive free trade area that would encompass 40 per cent of the world economy would force companies to be more competitive and efficient, pushing them to cut jobs.

They also say that participating countries’ economies would shift to focus more on producing goods for export rather than for domestic consumption, and export-oriented industries create fewer jobs, overall.

In all, the study estimates that the 12 countries involved in the proposed free trade deal would lose a net total of 771,000 jobs in the 10 years after the deal comes into force.

The study is bound to be controversial, given it contradicts some earlier research that suggested net benefits to employment and economic growth from the TPP.

The World Bank estimated last year that the GDP of TPP countries would increase on average by 1.1 per cent thanks to the deal, though for NAFTA countries (the U.S., Canada and Mexico) it would only be 0.6 per cent.

A study from the right-leaning Fraser Institute estimates that the TPP would boost Canada’s GDP by $9.9 billion, or double the Tufts study’s estimate, and increase exports by $15.7 billion. (The study makes no estimate of the impact on labour.)

The Tufts researchers argue that the models used by many other researchers are flawed because they look at changes to foreign trade, but disregard changes in the domestic labour force. These earlier studies assume full employment in their models, and assume there will be no change in the distribution of income, they say.

The Tufts researchers argue the trade deal would increase inequality in one important respect. The amount of income flowing to business owners and shareholders would increase, relatively, while the amount of income flowing to wage earners would shrink, the Tufts study predicts.

In Canada, “labour’s share of GDP,” as it’s known, would shrink by 0.86 per cent, and in the U.S., it would shrink by 1.31 per cent. (Canada is already more unequal than the U.S. when it comes to labour's share of income.)

Because the TPP “would negatively affect income distribution,” it would weaken domestic demand, “significantly undercutting possible gains from trade,” the researchers concluded.

The 12 negotiating countries reached an agreement on the text of the TPP last fall. The deal now has to be ratified by each of the participating countries.

The current federal Liberal government gave cautious support to the deal while campaigning last fall against the previous Conservative government, which negotiated the deal.